Standing in the Way of Success
Megan McArdle has a good post and excerpts from Adam Shepard, who set out with $25 to see how hard it was to escape from poverty. I won't re-quote that post here, you should see her site, but I wanted to comment on one thing Shepard says about his early days trying to convince supervisors they should hire a homeless guy:
So, he gave me the secret. To paraphrase, he told me to go to these managers and tell them who you are, that you are the greatest worker on the planet and that it would be a mistake not to hire you. If they take you on, great. If not, move on down the line. By day’s end, you’re gonna have a job.
So I did. The next day, I went to see Curtis at Fast Company, a moving company where I’d already applied. “Curt!” I said. “I’m Adam Shepard, and I’m the greatest mover on the planet. It would be a mistake for you not to hire me.” He looked at me across the table and smiled, knowing I was lying like hell to him. But he liked my attitude – especially after I offered to work a day for free – so he hired me on the spot.
This is very normal -- if you want someone to take a risk, you try to reduce the cost for him. Not sure you want to try our product? We'll give you a free sample. In this case, he agreed to work for free to convince the manager he was a good worker. This makes sense -- to emerge from homelessness and to get a job with no skills and no work history, one needs to be willing to give a bit of a discount on your labor, at least at first, to get someone to give you a chance.
But here is the interesting part -- the arrangement Curtis and Adam Shepard made is ILLEGAL. The Fair Labor Standards Act, which includes Federal minimum wage law, does not allow Curtis to accept unpaid labor and does not even allow Mr. Shepard to offer it. The fact that the deal makes so much sense and it so clearly is in the mutual best interest of both parties is absolutely irrelevant under the law. Fast Company could be busted, should the DOL choose to focus its attention their way.
When people argue that the minimum wage is most harmful to the poor, because it prices the first rung of the labor ladder beyond what their minimal skills can justify, this is what they mean.
Recipients of Intellectual Welfare
Today, Kevin Drum quotes Obsidian Wings as saying:
The men in my family of my father's generation returned home after serving their country and got jobs in the local steel mills, as had their fathers and their grandfathers. In exchange for their brawn, sweat, and expertise, the steel mills promised these men certain benefits. In exchange for Social Security taxes withheld from their already modest paychecks, the government promised these men certain benefits as well.
....These were church-attending, flag-waving, football-loving, honest family men. They are rightfully proud of providing homes and educations for their children and instilling the sorts of values and manners that serve them well as adults. And if I have to move heaven and earth, now that they've retired, the Republican party is NOT going to redefine them as welfare recipients.
First, I agree, whether I like the program or not, that people who contributed for years and were promised certain benefits should receive them. The benefits the average retiree gets today were certainly paid for - in fact, over-paid-for given the implied rate of return they got for their forced "savings". So I won't argue that these retirees are getting financial welfare.
BUT, I would argue that they are getting intellectual welfare. Advocates for keeping forced savings programs like Social Security in place as-is by necesity argue that the average American is too stupid, too short-sighted, and/or too lazy to save for retirement without the government forcing them. Basically the argument is that we are smarter than you, and we are going to take control of aspects of your life that we think we can manage better than you can. You are too stupid to save for retirement, too stupid to stop eating fatty foods, too stupid to wear a seat belt, and/or too stupid to accept employment on the right terms -- so we will take control of these decisions for you, whether you like it or not. For lack of a better word, I call this intellectual welfare.
By the way, this is as good an answer as any to Mr. Drum's earlier question why liberals don't push the privacy issue harder. He opines:
Whenever I talk about the underlying principles that should guide liberals, as I did a couple of days ago, one of the ideas that always pops up is privacy rights. In fact, it comes up so often that it strikes me that we're missing a bet by not making a bigger deal out of it.
I am all for a general and strong privacy right. I would love to see it Constitutionally enshrined. But liberals (like conservatives, but I am answering Drum's question) don't want it. They want to allow women to choose abortions, but not choose breast implants. They want the government to allow marijuana use but squelch fatty foods. They don't want police checking for terrorists but do want them checking for people not wearing their seat belts. They want freedom of speech, until it criticizes groups to whom they are sympathetic. They want to allow topless dancers but regulate the hell out of how much they make. Liberals, in sum, are at least as bad about wanting to control private, non-coerced individual decision-making as conservatives -- they just want to control other aspects of our lives than do conservatives.
A true privacy right would allow us complete freedom over who we sleep with, what we do with our bodies, where we work, and what we pay for goods. And, not incidentally, how we choose to invest for our retirement. Both parties want the government to control parts of our lives, so don't expect either conservatices or liberals to be pushing the privacy issue very hard.
Update: William Mellor of the Institute of Justice has some thoughts related to this topic in The American Lawyer:
Without realizing it, liberals and conservatives are working from opposite ends of the political spectrum, under opposing rationales, to reach the same end: expanded government power...
The Framers envisioned a system in which individuals enjoyed rights equally, and the rights they enjoyed were treated with equal respect under the Constitution. But in 1938 the U.S. Supreme Court's ruling in United States v. Carolene Products Co. (upholding a Congressional ban on interstate shipment of milk that contained added fat or oil) created an artificial dichotomy under the Constitution. Some rights, notably free speech, were elevated to a preferred tier and now rightly receive vigorous constitutional protection. Rights demoted to the second tier, specifically economic liberty and property rights, wrongly receive far less protection....
Liberals, however, tend to reject the notion that the courts have any role in seriously protecting economic liberty or property rights. This is remarkable in light of the fact that many liberals strongly advocate court protection for various rights-such as welfare or abortion-whose constitutional pedigree is far more questionable than rights to private property and economic liberties.
Employment at Will
Yesterday I mentioned employment at will in this post about police officers who were fired for assaulting a handcuffed man and who successfully sued for wrongful termination.
Here’s where things get tricky. In between employment at will and the law is a whole mess of claims, counterclaims, lawsuits, disputations and confusion. It’s enough to make anybody scratch their head.
We have had several instances where employees have threatened legal action over termination. I have observed at least three reasons for this:
- Employees sometimes have a skewed view of the termination process, thinking that a company must hold to some kind of courtroom "beyond a reasonable doubt" standard in amassing reasons for termination.
- The most inept employees never seem to know that they are inept
- Some employees are far more adept at working the system than they are at their jobs.
We do several things to help make things go smoother:
- Unless the violation was outrageous, where we fire on the spot, we try to give employees written warnings and coaching before they get terminated
- Every new employee signs a 60/90 day probationary period letter. If there are problems, they almost always occur in the probation period -- ie they turn up quickly -- and the probationary period gives us more leeway to quickly terminate. Update: This article says why this policy can be a mistake, or at least you have to be careful with it. This is less of a problem for us since most of our employees only work a 5 month season anyway.
- We don't give references. I have said that this makes me feel guilty, but negative references about fired employees are a big source of litigation, and frankly, I am sorry to admit, the treat of wrongful termination suit is greatly reduced if the ex-employee finds a good job somewhere else. Kind of the business version of hot potato.
- Being a seasonal business saves us. For many employee problems, we limp along until the end of the season when we can terminate the person for lack of work, then we make sure not to rehire them in the spring.
But the Clifton, N.J., instructor never got over it. Instead, he has filed 15 lawsuits in Manhattan federal court and three others in Brooklyn and New Jersey courts, seeking reinstatement and millions of dollars in damages.
Each lawsuit has been tossed out as meritless. But a defiant Malley hasn't gotten the message or doesn't care.
As with any labor law or legal liability issue, there are probably more ways to trip up than you ever imagined. This article at Faegre.com, which I found via George's Employment Blawg, has a nice summary of key issues in five categories.
Because the vast majority of our employees are over 70, and a number of them have disabilities, we have to be very careful in hiring. Many of our jobs can be physically challenging, and dangerous to perform with some disabilities, so we have to take care to make sure an employee understands the work and that we mutually agree they can do it safely.
One related area that I am not sure has been tested regards our corporate insurers. Increasingly, insurers, particularly for our corporate vehicle policies, are refusing to insure over-70 drivers without some kind of letter from a doctor that they are capable of driving safely. As you can imagine, doctors face liability if they put in writing the employee can drive safely (so the doctor might be liable if there is an accident) or if they write that the employee can't drive safely (so the doctor might be liable for effectively denying the employee insurance, or even a job). As a result, doctors are reluctant to produce such letters.
It has not come up yet, but what happens if one of my employees is uninsurable for driving, and driving the company vehicle is an essential part of their job? Do I face an ADA case for discharging them? What choice would I have in that case?
We also have very severe challenges with off-duty behavior. Most all of our employees live on the job site (i.e. the campground managers live in the campground). So, off-duty behavior occurs on the job site. Until I had this company, I always said that I did not care what an employee did on her own hours at home - but now, what happens on the employee's own time occurs in front of my customers.
We continue to walk a fine line on this. To date, we have told employees that even if they are not on the clock, if they are wearing our uniform or verbally representing themself as a company employee, they are subject to on-the-job behavior rules. Once the uniform is off and they are just "Joe", and not "the manager", they are free to do as they please, though they are still bound both by federal and state laws as well as campground rules.
Well, just when you think you have seen every way to screw up in a small business, there comes this story.
The owner of a shaved ice business was arrested after two employees claimed he spanked them for making mistakes at work.
One of the women told police that on her first day at the Tasty Flavors Sno Biz, Levengood made her sign a statement that said: "I give Gene permission to bust my behind any way he sees fit."
Hat tip to Jim Rome, as I first heard this on his radio show, and to the Mises Institute, of all places, where I found the link. This story has been out and about for a while, but I wanted to give it a few days to make sure it was not a hoax.
Good Labor Law Site for Employers
Just added George's Employment Blawg to my blogroll. As a small business, the biggest shock has been dealing with employment related issues (working for large corporations, this stuff was all invisible to the average general manager - huge departments of HR people just sortof took care of it).
I like what I have seen of this site, and its got some other useful links in the blog roll. It is written from the perspective of the employer (which is actually unusual for labor law sites - most are run by lawyers who represent workers and are mostly instruction manuals on extracting more money from businesses).
Disputing Unemployment Claims
As background, state unemployment offices generally give employers a chance to dispute new unemployment claims from ex-employees. In most states, if the employee voluntarily quit or was fired for cause, they are either not eligible or at least the employers experience account is not hit (for each employer, the state keeps a running tally of claims paid to their employees - if the sum is high enough in a given year, the employers rates go up for the next year).
This is all in theory. I don't know what other employer's experiences are, but I almost NEVER win one of these disputes. Most unemployment offices are stacked with people who's bias is always toward the employee. For example, in a recent case, I had documented evidence that an employee was fired for physically attacking a customer! The state unemployment office denied my protest as not sufficient, and to this day I am paying that person's unemployment. Today, I got notice that California had denied my most recent protest. I had sent evidence that an employee was repeatedly warned and eventually fired for constantly being late - day after day an hour or more late for weeks. Nope, not good enough says California. So, instead of paying this person for showing up late, I am paying them, via the unemployment system, for not showing up at all.
Does anyone know if there are any tricks or techniques to be more successful at this?
Working with the Department of Labor: Part 3
In this post, I will show you how we defended ourselves in a case where the DOL was extremely reluctant to grant us a legal exemption to the Fair Labor Standards Act (FLSA). It is highly unlikely that this exemption is relevant to you - it is narrowly directed at seasonal recreation businesses, but I think the process and what we learned from it may help you out in your own interactions with the DOL.
You do need a bit of background on the exact situation so you can understand the story. We operate campgrounds under concession contract with the US Forest Service. These campgrounds are typically seasonal, meaning they are generally only open for 4-6 months a year. We recently had an inquiry from the DOL about two people who worked for us, claiming they were underpaid, since the straight salary they were paid, when spread over the actual hours worked, put them under minimum wage. We have since corrected the process problem that led to this situation, but we quickly agreed that we did indeed underpay them for their hours.
However, in a couple of cases, they worked past 40 hours a week, for which they claimed we owed overtime pay. We responded that the FLSA exempts "seasonal recreation businesses" from the 40 hour requirement. Actually, the situation is more complicated than this, because the FLSA has an exception to the exemption for businesses in the National Forest (no kidding, that narrow!). The long and the short of it is that the FLSA overtime rules apply to seasonal recreation businesses in the National Forest, but overtime starts at 55 hours, not 40.
This is where the fun started.
OK, if you have been paying attention, you should already know what happened next. The DOL's first response to our claiming this legal exemption was, what? Anyone? There response was no. A year ago I would have been shocked and sputtering mad, but since I now had experience with this (and since getting irrationally mad never helps with the government anyway) I got to work. I prepared a detailed package of material to prove my case:
1. There are approved regulations on the DOL web site that state what tests are made to prove seasonality. Basically it involves showing monthly historical sales numbers for the particular park to show it is closed 6 months of the year or that 6 months sales dwarf the other 6. This was easy and the DOL quickly agreed we were seasonal.
2. I sent my current lease with the National Forest to prove I was in the National Forest. The DOL quickly agreed that yes, I was in the National Forest.
3. I sent them documents from the Forest Service showing that campgrounds were an important part of the Forest Service's recreation mission. The DOL disagreed, stating that in their opinion, camping was not recreation
Now this last assertion would come as a huge shock to most of our campers, who certainly consider it recreation. Heck, the US Government considers it recreation -- check out this page from Recreation.gov, run by the Feds. My next step was one I advised in part 2 of this series - I asked the DOL to show me in writing why camping was not recreation. This time, the DOL did find a written passage that (sort of) supported their position. It was from their Field Operations Manual. If you remember the hierarchy of sources we discussed in part 2, this is about the weakest possible source. Had it been necessary, it is probably the easiest source to overturn in court.
As it turns out, the manual did not actually say camping was not recreation. It said that camping may or may not be recreation, based on a test (let this be a lesson, again, to get the DOL to show you sources in writing). The test basically boils down to: If customers are using the campground mainly as lodging, staying just overnight and then moving on down the road or visiting a nearby attraction outside the campground, then it is not recreation. If, however, campers stay in the campground and then take advantage of recreation opportunities in the campground, it is recreation. Now someday, I may need to challenge this test in a higher authority, because the exact wording of the test seems to imply that a campground needs developed facilities, e.g. pools and tennis courts and golf courses, to be recreation. As I told the DOL at the time:
[Your recreation test appears to be] written by modern American city-people who cannot imagine recreating without swimming pools or miniature golf courses or organized functions. Our customer base considers camping and getting away from development and pools and golf courses and schedules to be recreation in and of itself. They enjoy being out in nature, and would consider it a worse recreation experience if there were a bunch of developed facilities there...our patrons stay in the campground and relax, socialize with other campers, hike, build and cook over campfires, tell stories, teach their kids about nature and the outdoors, bird watch, pick berries, swim in the lake or stream that is in the campground, then go home.
Anyway, I was not able to prove that our campgrounds were "recreation" by dint of their facilities. However, again I did not give up. I proposed two tests with the DOL. In test 1, we would analyze the home zip codes of all the campers at this particular campground for the last several weeks. If most of the campers came from, say, less than 100 miles away, then clearly they are not using the campground as intermediate lodging - they are there for recreation. Who would stop for the night just a few miles from their home if they are on the way somewhere else? In test 2, we actually took a 7 day survey of campers, asking our campers to choose one of these three options:
1. We will spend most of our stay at [this campground] in and around the campground.
2. We will spend most of our stay at [this campground] visiting other nearby recreation sites.
3. We are only staying at [this campground] overnight on our way someplace else.
We did not tell the campground manager why we were taking the survey so they would not bias the answers.
Well, in the end, 95% of all the campers in this campground lived less than 90 minutes away and many were from less than 30 miles away. 100% of the survey respondents chose response #1, saying that they were in the campground to spend their time in the campground itself, not to go somewhere else.
Based on this evidence, the DOL allowed me the exemption in this case. Hurray.
What I did not tell you
OK, the following will probably make you think I am nuts. The total overtime in question was about $20. Why, you rightly ask, did I not just pay the dang twenty bucks and get on with my life? The answer is, I did this once before, paying a nominal amount but under protest. However, this came back to haunt me in this situation, when the DOL, in initially denying me the exemption, implied that the previous case had "resolved" the fact that we were not allowed it. I decided that if we were going to start setting precedents, I was going to fight over everything.
The funny part is that, when it was all over, they cautioned me that this was an establishment exemption, meaning that this decision was only for this particular campground, and we would have to prove it all over again for other campgrounds if they ever came under review. So they are taking the position that being denied the exemption was precedent setting, but getting the exemption establishes no precedent. And, it is hard to overlook the irony that the DOL immediately accepted without question or documentation estimates of hours worked from my employees generated from their memory over a year after the fact -- while they required over 30 pages of data for me to prove camping is recreation.
Nevertheless, I am glad I did it. If this ever comes up again, I am ready with ammunition to win the case. Hopefully, the surveys we ran at this campground will be acceptable evidence for other similar campgrounds, but, if not, we know how to quickly run the surveys again.
As a final note, I want to add that my investigator in this case seemed honest and easy to work with. While I was frustrated with DOL the institution, I never was frustrated with her individually. And, in the end, she yielded to the evidence.
Working with the Department of Labor: Part 2
In part 1, we discussed general expectations you should have as a business owner in working with the Department of Labor. In this installment, I will discuss a typical audit and some of the things we did to protect ourselves. In part 3, I will discuss a specific example of how it is possible to win your case with the DOL, but it may take a LOT of effort.
Type of Audits
I am not an attorney and am by no means an expert on labor law. We bend over backward as a company to be in compliance with labor law, so we really don't run into the Department of Labor too often. However, our industry is the beneficiary of certain exemptions in the Fair Labor Standards Act. If you remember from part 1 of this series, the DOL really doesn't like it very much when anyone takes advantage of these legal exemptions, so this has led to some extra scrutiny that our careful history of compliance would not normally warrant.
We have had two different types of audits:
1. A regional audit, that covers all of our operations in one state or in one complex or contract
2. An individual audit, covering one or two employees who have specifically disputed their pay to the DOL
Presumably there are also whole company audits where the DOL takes apart the whole company, but we have not experienced this. Maybe we will if I keep making these posts ;=)
In the regional audit, the DOL specified an operational scope (e.g. your facility in Sheboygan) and a time frame. This time frame is usually not more than 2 years back, as I believe this is the statute of limitations for inadvertent violations. Willful violations have a longer statute of limitations.
In this audit, the DOL requested a data dump of the following (for the employees in this time frame):
1. Payroll check registers (we just dumped them all our ADP stuff). By the way, this is for a future topic, but if you have more than about 3 employees and are not using a payroll firm nowadays, you are nuts.
2. Time sheets
3. Vacation histories and pay (not normally relevant to the FLSA but is relevant if you are operating under the Service Contract Act or Davis Bacon.
4. Description of operations
5. Work week
6. a few other things I can't remember right now
In the case of the individual audit, we were only asked for this data for the individuals involved. We were also provided with a handwritten sheet of the estimated hours worked by these employees (this was a case of salaried employees making the case that they were underpaid based on the FLSA).
In the case of the individual audit, we began by either accepting or disputing (a difficult task, as discussed in part 1) the employee's estimate of hours. Once we arrived at an agreed to number of hours worked, we created a spreadsheet to see if there were pay periods that the employees were paid less than minimum wage. In the most recent case, we agreed that over the past year we had underpaid them a few hundred dollars and agreed to repay the amounts. We sent a check to the employee, who signed a receipt for the Department of Labor, which closed the case. This kind of mistake on our part has happened to us innocently a few times, and we have always paid the employee promptly. We have never had a civil penalty (which seem to be levied only when willful and knowing law-breaking is found).
For the regional audit, we supplied all the materials they asked for. In retrospect, we should have supplied a few more things. For example, we should have supplied them with a well-written description of why we thought a couple of key exemptions applied to these operations. However, we felt so confident that we clearly fell right in the middle of the exemption language that it was not necessary. We were wrong. The reason that I think it was a mistake not to provide this right up front was that I sensed a real hesitation later in the process by the DOL to back off any of their preliminary findings. Once they had laid these findings out there, it seemed like somehow their "face" and institutional credibility would be surrendered if they reversed any of these findings. They decided, based on whatever evidence they had but certainly nothing from me, that certain exemptions were not going to apply and that was it in their mind. I think it is MUCH better to try to make your points early in the process, before the department has taken a stand.
Several weeks after we submitted all of our paperwork, the DOL came back with an employee by employee calculation of what they thought we owed employees in back pay. It turns out the number was staggeringly high. I was totally shocked. We were very careful about compliance. I could believe we missed some record keeping detail or a few dollars here or there, but this was crazy. Looking at the findings in more detail, they came in three parts:
1. The DOL found we owed a nominal amount of back vacation pay based on our using the wrong formula for certain employees covered by the Service Contract Act (SCA). Given the complexity of it, I was pretty sure we could have made a mistake, and the amounts were nominal, so we immediately agreed to make restitution.
2. The DOL found we owed a nominal amount of back overtime pay for certain employees who had worked a few hours over 40 a week. I won't go into it here, because it is the heart of part 3 of this saga, but as a seasonal recreation business operating in the National Forest, we are allowed, by law, a 55 hour week rather than a 40 hour week before overtime. The DOL disagreed, taking the stance that camping (our business) was not recreation and therefore we did not qualify. We thought this was absurd. In the end, rather than keep running up my own time and legal bills, I paid under protest. This turned out to be a mistake - the DOL tried to use this later as a precedent to deny us the exemption in another audit. We will relive this saga in part 3.
3. The DOL found that we owed a staggering amount of money for back "fringe benefit" pay. I will conclude this post by discussing our back and forth with the DOL over this issue, because it taught me a lot about how labor law and regulation works
The Fringe Benefit Issue
There are several special labor laws that apply to government contractors, known as the Service Contract Act (SCA) and Davis Bacon Act. Both of these Acts set minimum wages and other work rules for government contractors. In most parts of the country, these are way above the normal minimum wage (for example, in Washington State, even ordinary day labor can run over $30 per hour). Normally these labor laws do not apply to concessionaires like us, but they were applied to one of our contracts, and we have never been successful in, uh, un-applying it. This audit was for that contract.
One piece of background - in requiring a minimum wage, generally there are two parts to the requirement. There will be a minimum base wage per hour and there will be a minimum fringe benefit per hour, which we pay out in cash. So, a person's wage on this contract might be $8.23 per hour base wage plus $2.75 per hour fringe for a total of $10.98 an hour.
Where we got cross-ways with the DOL was that our employee's pay stubs just had the hourly total - in this example $10.98 an hour. The DOL investigator said that the base wage and fringe had to be shown separately on the pay stub, and since we did not, the DOL assumes we did not pay the fringe, so we owed $2.75 an hour (or whatever it was) times every hour every employee worked in the audit period. Thus the big bill.
Of course, we argued that this was ridiculous. First, we argued that $10.98 clearly met the minimum for the two combined, and therefore we were meeting the real intent of the law, that the employee get paid a statutory minimum. Second, we argued that the law does not say that the $10.98 has to be shown broken out on the pay stub - it only says that we have to keep clear and separate records of the base and fringe payments. Well, we had plenty of records (which we shared with the DOL) that showed the two parts of the payment - it just wasn't on the pay stub.
Hierarchy of Law
This is where I began to learn about the hierarchy of labor law. As I understand it (and remember, I am not a lawyer) it is something like this, from strongest to weakest:
1. The actual statute as written by Congress, e.g. the Fair Labor Standards Act
2. Court rulings and precedents
3. Approved regulations what have been through the public comment and approval process
4. Formal DOL rulings
5. Internal DOL guidelines and manuals
6. Informal DOL rules of thumb
Numbers 1, 2, and 3 have a lot of legal force. Five and six may or may not - they represent the DOL's opinion, but that opinion has not been vetted by a regulatory hearing or court decision. These get overturned by courts all the time.
When the DOL tells you can or can't do something, they likely will say it with equal authority if it comes from 1 or 6. For example, in this case, the DOL said with total authority that the wage and fringe have to be split on the paycheck.
Well, I knew from my own reading of the law - I read every relevant word myself in the SCA, that this requirement was not in #1 or #3 (Both the law and the approved regulations concerning it are on the DOL web site). My Internet search, and later a more formal search by my attorney, found no precedent for this statement in #2 or #4. From this, I knew I was on pretty safe ground.
So, I next did what I advise you to do every time with the DOL when they give you such a requirement - ask to see the source in writing. Tell them you want to see the part of the law or finding or manual this comes from. In my case, they never could produce anything.
One mildly scary postscript, the DOL never formally changed their mind about the fringe benefit issue. They never backed off their contention that the fringes had to be listed on the pay stub separately (despite the lack of any written requirement for this) and never backed off the contention that since they were not listed on the pay stub, and despite the evidence that I had paid people enough in total to satisfy all requirements of the law, that I still owed a bunch of fringes.
Eventually, I threw up my hands and told them that I would pay everything else (which I did) but that they would have to take the company to court if they wanted me to pay the fringes (a second time!) Both my attorney and I were confident that the DOL could never win this argument in court. Eventually, the DOL chose not to prosecute it further, which strikes me as different and somehow more open-ended than dropping the claim altogether.
By the way, ever since we have broken the two out on the paystub. It may not be required, but there is not point in getting back into this mess with future auditors.
Coming Soon, Part 3
While this part has been a story of fighting to a draw, it is possible to win even when the DOL initially rules against you. In part 3 I will tell the story of how we did this, and how we eventually got the DOL to reluctantly agree that camping can, sometimes, be recreation.
Is the Department of Labor "Fair"? Part 1 of a series
Over the past several years, we have been audited a couple of times by the Department of Labor (DOL). One of the audits was standard procedure (as a concessionaire to the US Forest Service, audits are sometimes required on certain contracts) and one was based on employee complaints. It never ceases to amaze me that some folks never even bother to call our HQ to complain and try to get it paycheck mistakes fixed -- they go straight to the government rather than our labor department if something looks wrong on their check.
Many times I have heard other small business owners say that the DOL is not "fair". If you were to ask me if I think they are fair, I would answer "yes" and "no". If you want to know if DOL employees are generally honest, well-intentioned, and law-abiding, my experience is that they are. However, if you expect, as a business owner, that the DOL will act as some kind of neutral court of law, in which you and your workers have equal status and equal rules of evidence, then you are in for a surprise. The DOL is not on the employers side and doesn't really pretend to be.
This should not come as a surprise to you. Young lawyers out of school generally don't seek out lower government pay scales with a vision of helping businesses manage their cost structures. They join the DOL because they are interested in defending downtrodden workers against rapacious capitalists who seek to exploit them (etc. etc.) The main mission of the DOL is to enforce labor laws like the Fair Labor Standards Act (FLSA). However, overlaying this mission is a strong institutional culture that mission 1A is to defend workers against employers. This culture will have a number of implications in any dealings you, as an owner or employer, have with the DOL:
1. Workers claims will almost always be believed by the DOL, and the DOL will generally not require much documentary evidence to back up workers claims. The flip side of this is that employers claims that contradict workers will always require extensive documentary evidence. For example, we had several weeks of time sheets burn up in an office fire. In cases like this, the DOL will generally always side with the worker's recollection of time worked rather than the employers, even if the time claimed is completely inconsistent with hours worked in all other documented weeks. The burden of proof, in almost any dispute, will be on the employer.
2. The DOL's first answer to any employer's claims of an exemption under FLSA or other labor laws will be "NO". Congress has granted a number of exemptions to labor laws for certain business situations. For example, one that applies to our business in some cases is the FLSA has relaxed standards for overtime for "seasonal recreation businesses". From my experience, the DOL hates to admit that these exceptions apply to your particular situation. Back to the fairness point, they CAN be convinced, but sometimes it takes a lot of work to do so. In part 2 and part 3 of this series, I will give more specific examples of how to do this.
3. The DOL will never point out to you an exemption or saving that you are missing. I know that many people get frustrated with the IRS, but I have actually had experiences where the IRS found a mistake where I had overpaid. I have never had this experience with the DOL. The DOL does not really have very good staff or tools to help employers comply with the law in the most efficient manner. They have LOTS of tools and people dedicated to making sure workers get every bit of what the law guarantees them.
If you recognize this culture and context, and put any frustration that you might have as a tax-paying citizen and business owner aside, you can get a fair shake from the DOL. You just have to be prepared in advance to argue your case and bring lots of evidence to bear. And, if worst comes to worse, and you are willing to pay the attorney fees, you can always refuse the DOL's finding and take the case to a court of law, where there are much more neutral evidence standards.
Note: These are my observations as a business owner and are not specific recommendations. I am not a lawyer, and, even if I were, I am not your lawyer.